First Appeal No.877 of 1998,Consumer Complaint No.245 of 1997

16th January, 2007

Petitioner Counsel: A. P. REGE

Cases Cited:
Union Bank of India Vs. Manku Narayana, AIR 1987 SC 1078 [Para 3]
State Bank of India Vs. M/s. Indexport Registered, AIR 1992 SC 1740 [Para 3]
Jagannath Ganeshram Agarwal Vs. Shivnarayan Bhagirath, AIR 1940 Bom 247 [Para 7]
Punjab National Bank Vs. Surendra Prasad Sinha, AIR 1992 SC 1815 [Para 8]

JUDGMENT

B. B. VAGYANI, President :- This appeal filed by Union Bank of India (Org. Opposite Party) in consumer complaint no.245/1997 is directed against the order dt.01-04-1998 passed by District Forum, Sangli whereby, the Forum below directed the bank to refund the deposit amount of Rs.7,648/- to the depositor together with interest @ 18% p.a. The opposite party has taken exception to the this order and has come up in appeal.

2. We heard Adv. A. P. Rege for appellant (Org. Opposite Party) and none is present for respondent (Org. Complainant).

3. Admittedly the complainant had opened an recurring account with the bank and went on depositing Rs.300/- per month. By the end of 01-08-1997 a sum of Rs,7,648/- was accumulated in the account of complainant. This amount was inclusive of interest. It is not disputed by the complainant that she stood as a surety to one Shri. Vijay Yashwant Patil who has taken a crop loan of Rs.12,000/- from the very bank. The borrower was a defaulter. Therefore, the bank directly adjusted the amount of Rs.7,648/- against the loan amount which was due from the borrower. Therefore, the complainant filed consumer complaint making serious allegations with regard to the deficiency in service on the part of bank. According to the complainant the bank ought to have proceeded first against the borrower and thereafter against the surety. The Forum below relying on the decision of Hon'ble Supreme Court in case of Union Bank of India Vs. Manku Narayana, AIR 1987 SC 1078 allowed the complaint and passed impugned order. In case of Manku Narayana the Hon'ble Supreme Court had earlier taken a view that the creditor bank should first exhaust its remedy against the principal borrower and after exhausting the remedy shall proceed against the surety. The Forum below has committed serious error in relying on the over ruled judgment of Hon'ble Supreme Court. The ratio in Manku Narayan case is no more good law. The said case is over ruled by Hon'ble Supreme Court in case of State Bank of India Vs. M/s. Indexport Registered and Others, AIR 1992 Supreme Court 1740. It appears that the subsequent judgment of Hon'ble Supreme Court was not brought to the notice of Forum below. Hon'ble Supreme Court has held that it is a right of decree-holder to proceed with it in a way he likes. The Hon'ble Supreme Court in case of State Bank of India Vs. M/s. Indexport Registered and Others, AIR 1992 Supreme Court 1740 has observed in para 22 of its judgment that even if the two portions of the decree are severable and merely because a portion of the decretal amount is covered by the mortgage decree, the decree-holder, per force has to proceed against the mortgaged property first are not based on any principle of law. Hon'ble Supreme Court clearly held that Manku Narayan's case was not correctly decided. In para 25 of the judgment Hon'ble Supreme Court concluded that decree holder is entitled to proceed against guarantor for the execution of the aforesaid decree. Section 128 of the Indian Contract Act itself provides that "the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract."

4. In Pollock & Mulla on Indian Contract and Specific Relief Act, Tenth Edition, at page 128 it is observed that "surety's liability is co-extensive with that of the principal debtor. A surety's liability to pay the debt is not removed by reason of the creditor's omission to sue the principal debtor. The creditor is not bound to exhaust his remedy against the principal before suing the surety and a suit may be maintained against the surety though the principal has not been sued."

5. In Chitty on Contracts 24th Edition volume 2 at page 1031 paragraph 4831 it is stated as under :-

"Prima Facie the Surety may be proceeded against without demand against him, and without first proceeding against the principal debtor."

6. In Halsbury's Laws of England Fourth Edition paragraph 159 at page 87 it has been observed that "it is not necessary for the creditor, before proceeding against the surety, to request the principal debtor to pay or to sue him, although solvent, unless this is expressly stipulated for".

7. In Jagannath Ganeshram Agarwal Vs. Shivnarayan Bhagirath, AIR 1940 Bom 247, a Division Bench of the Bombay High Court held that the liability of the surety is coextensive, but is not in the alternative. Both the principal debtor and the surety are liable at the same time to the creditors.

8. A reference with profit can be made to the decision of Hon'ble Supreme Court in case of Punjab National Bank Vs. Surendra Prasad Sinha, AIR 1992 Supreme Court 1815. The Hon'ble Supreme Court has held that the creditor would be entitled to adjust, from the payment of sum by a debtor towards time barred debt. The Hon'ble Supreme Court has further observed that the creditor when he is in possession of an adequate security, the debt due could be adjusted from the security in his possession and custody.

9. We would like to reproduce a clause from the letter of guarantee which is executed by the complainant in favour of the bank is as under :-

"The Bank shall have full discretionary power with or without reference or notice or consent to or from me us to grant time or other Indulgence to or accept or make any composition or arrangement with the Principal or any person or persons liable in respect of any indebtedness or liability hereby Guaranteed and also vary, abstain from perfecting, exchange, renew, discharge, release, enforce and deal with in whole or in part and from time to time any bills notice, mortgages, charges, liens or nay securities obligations or decrees now or hereafter held by the Bank in respect thereof and generally to treat me/us as though I/We were primarily and severally liable with the Principal."

10. As per clause of letter of guarantee the complainant is liable to pay outstanding dues of defaulter to the extent of Rs.12,800/-. In fact the amount adjusted by the bank is less than Rs.12,800/-.

11. The impugned order suffers from illegality and therefore, can not be sustain in law. In the result we pass following order:-

ORDER

1. Appeal is allowed.

2. Impugned order is hereby quashed and set aside.

3. Complaint stand dismissed.

4. No order as to costs.

5. Pronounced and dictated in open court.

6. Copies of the order be furnished to the parties.

Appeal allowed.